Would you take a lump sum buy out from SS?

[nun]

If you could would you take a lump sum buy out from SS?

I'm interested in people's attitude to risk and "guaranteed" income in retirement. So it occurred to me to ask whether you would take a lump sum in place of SS assuming current IRS segmented interest rates and COLA?

 

[MooreBonds]

I'm interested in people's attitude to risk and "guaranteed" income in retirement. So it occurred to me to ask whether you would take a lump sum in place of SS assuming current IRS segmented interest rates and COLA?

I believe in diversification. If I didn't have any SS or a pension, I would strongly consider buying a SPIA with perhaps 20% or so of my portfolio, pending more details when I get up to my 60s (over 20 years away).

So if SS offered me to rollover over my balance, even if it were truly actuarial neutral, I'd probably opt to keep it to help offer some stabilization to the portfolio withdrawals.

 

[hnzw_rui]

Did the math. IRS segmented rates work out to 6% initial WR for age 67 with 20 years life expectancy (19.4 based on RMD Table I: Single Life Expectancy for Beneficiaries). SPIA from immediateannuities is 7% cashflow rate (Single Life, Male, 67) but no COLA which is my primary gripe with SPIA. As far as annuities go, SS is pretty inexpensive so I'd rather get the monthly checks than go lump sum for the income diversification.

 

[Gill]

Can't really answer without knowing the lump sum and the health of the person involved.
Bruce

 

[MichaelB]

No.

 

[donheff]

I believe in diversification. If I didn't have any SS or a pension, I would strongly consider buying a SPIA with perhaps 20% or so of my portfolio, pending more details when I get up to my 60s (over 20 years away).

So if SS offered me to rollover over my balance, even if it were truly actuarial neutral, I'd probably opt to keep it to help offer some stabilization to the portfolio withdrawals.

+1 I think this is why people get so alarmed at proposals to weaken or do away with SS and Medicare. Everyone knows we pay a lot for these programs but having a guaranteed source of income and medical care for old age is a huge deal. And despite all the ballyhoo about the deficit I suspect most of us still trust the US Government to guarantee those benefits better than self funded sources.

 

[DEC-1982]

NO

 

[travelover]

+1 I think this is why people get so alarmed at proposals to weaken or do away with SS and Medicare. Everyone knows we pay a lot for these programs but having a guaranteed source of income and medical care for old age is a huge deal. And despite all the ballyhoo about the deficit I suspect most of us still trust the US Government to guarantee those benefits better than self funded sources.

And what to do with those that would take a lump sum, blow it and then come back as destitute? SS was never meant to be a retirement income, just a safety net.

 

[Midpack]

Everyone should have some retirement floor income IMO, how much can be legitimated debated (ours is already pretty low, see sig line).

And what to do with those that would take a lump sum, blow it and then come back as destitute? SS was never meant to be a retirement income, just a safety net.

+1. Like insurance, it doesn't really work if we're not all in. That alone is reason enough to not allow a SS lump sum option for anyone.

 

[rodi]

I'm a fan of the 3 legged stool. One of those legs is SS with it's nice COLA. I have a very small non-cola pension that I wish was bigger - that's another leg. And my third leg is my savings and rental income.

I would consider purchasing a SPIA to beef up the pension leg - if we weren't in this zero interest environment making them super expensive. No way in heck I'd give up the security and COLA factor of SS.

 

[Car-Guy]

I'd consider it but I would need to see the details first. But as someone else said, what happens when some folks blow their money and come back for help. Are "we" going to have to pay for them as charity cases.

 

[jim584672]

No.

Would change to "Yes" if I thought they were going to cut the benefit in the future.

 

[mrfeh]

Without doing the math, I think I'd answer "yes", but only because I'll be retiring early, and I think I could put that money to good use for the next 15 years.

If I was closer to FRA, I'd say "no".

 

[utrecht]

No.

Would change to "Yes" if I thought they were going to cut the benefit in the future.

Thats the obvious reason why anyone would vote Yes. So if you voted No I assume you dont believe they will cut the benefit in the future? I voted Yes because I do believe it will happen at some point. I guess if I was already 65 I would vote No because the most obvious change is to raise the age to begin collecting

 

[RE2Boys]

Nope, for the same reason some would consider purchasing an annuity......an income stream that you hope you never outlive.

 

[Texas Proud]

No...

The lump sum would not take into account spousal benefits and to me that is HUGE...

In fact, if you take my life expectancy and DWs.... she will earn more from my SS than I will...

 

[CRLLS]

NO! here too. I haven't even heard this talked about since ~2009. Before then, there was a lot of talk about eliminating SS all together and letting individuals handle their own retirement plans. Since that "correction" in the markets, I haven't heard much talk about this since. 3 legged stool is a great balance.

 

[Independent]

How can anybody answer that without knowing the size of the lump sum?

I'm currently deferring SS, so I'm actually buying a little more of their CPI adjusted life annuity each month. At the current "lump sum vs. annuity" trade-off, I think SS is a good deal.

A complete buyout might come at a different price.

 

[Texas Proud]

How can anybody answer that without knowing the size of the lump sum?

I'm currently deferring SS, so I'm actually buying a little more of their CPI adjusted life annuity each month. At the current "lump sum vs. annuity" trade-off, I think SS is a good deal.

A complete buyout might come at a different price.

Yes, this is the important part of the question for us... we have already paid into the system for years... if the question was, your are starting your career... do you want your money to go into SS or a different system where you control the money? I would answer it differently....


Or if the question was.... you can get a lump some based on your contributions and market earnings (not just bonds) or your regular SS payments?, it might be a different answer....

But since it is a lump sum based off of the current SS payment, the amounts should be neutral to a single person...

 

[hurricane harry]

yes


pay me back everything I contributed with interest


we'll call it even

 

[Midpack]

Absent specifics, I'd assume the OP meant a neutral lump sum vs SS choice. IOW, would you rather have a $X lump sum or the inflation adjusted immediate annuity that $X would buy? Then of course there's still the issue of current rates/yields...

 

[jkern]

Yes, if the lump sum was equal to my contributions (plus employer contributions) compounded annually by 5%. If it was a number the government comes up with, then no.

 

[hnzw_rui]

How can anybody answer that without knowing the size of the lump sum?

I'm currently deferring SS, so I'm actually buying a little more of their CPI adjusted life annuity each month. At the current "lump sum vs. annuity" trade-off, I think SS is a good deal.

A complete buyout might come at a different price.

Minimum Present Value Segment Rates

For August 2015, 1st segment 1.68, 2nd segment 4.05, 3rd segment 4.98. Single, 67 (assuming that's FRA) and RMD Single Life Expectancy Table.

1st Segment:
PV(0.0168, 19.4, 826*0.90*12) = 146,573

2nd Segment:
PV(0.0405, 19.4, (4980-826)*0.32*12) = 262,174

PIA (1st Bend Point): 743/mo or 8,916/yr
PV: 146,652
Initial WR: 6%

PIA (2nd Bend Point): 2,073/yr or 24,876/yr
PV: 146,573 + 262,174 = 408,747
Initial WR: 6%

 

[Big_Hitter]

^ that's not how the calculation works

the first segment rate is used to discount the first 5 years of payments, the second rate is used to discount the next 15 years (years 5 to 20)

also, you don't fix the pv calculation at life expectancy, the pv is a mathematical expectation so you need to assume a little piece of you dies each year until you are 100% dead (end of mortality table)

SS will never allow cashouts, the monies are needed for the insurance pooling feature of SS

let me know if you need a lump sum factor at age 67 using those rates, the problem is, the rates need to be shaved for a future CPI assumption

 

[Cobra9777]

I'm interested in people's attitude to risk and "guaranteed" income in retirement.

I voted yes (assuming it was a reasonable lump sum) for two reasons: (1) with 2 pensions and rentals covering 70% of our spend, we already have enough "guaranteed" income; and (2) I believe that SS will eventually be watered down through some combination of additional income taxes on benefits, means testing, reduced COL adjustments, increased retirement age, or they'll just allow the mandated reductions to happen.

My retirement spreadsheet includes a "factor" to reduce SS benefits. It's currently set at 70%, but I've had it as low at 50%. During the accumulation phase, I never thought SS would be a reality for us at all. I'm now beginning to think it will be, but not at the levels currently promised. If I'm wrong, my kids will make out like bandits.

I'm a big believer in having some level of "guaranteed" income, especially in early retirement to help mitigate sequence of returns risk. Both our pensions had attractive lump sum options, but we elected the annuity for this reason. One of them has no COLA and the other is partially COLA'd. For the same reason (sequence of returns risk), we also paid off the mortgage, bought 2 rental houses, increased cash allocation to 5%, and tilted the taxable portfolio to high dividends.

If the next 30 years is anything like the last 30, then these actions probably sacrificed some long-term growth potential. But we like the risk/reward trade-off in this case. With pensions, rentals, and dividends, our expenses are 85% covered (basic, non-discretionary is over 100% covered). The 5% cash allocation covers the remaining gap for many years. There's still a large portfolio to cover other risks, like inflation, longevity, LTC. Later on when SS comes around, I'd be less concerned about sequence of returns and thus more inclined to take the OP's theoretical lump sum. I doubt that would ever be an option though. If it was, I'd jump all over it.